THE UK is likely to lose its coveted AAA credit rating in 2013, economists believe, which would be a major loss of face for the Government.

Howard Archer, chief UK economist at think tank Global Insight, said: “Muted UK gross domestic product (GDP) growth in 2013 is likely to keep the UK public finances under pressure, which will not be well received by the major credit rating agencies. Moody’s, Fitch and Standard & Poor’s all have the UK’s AAA credit rating on negative outlook and have expressed their concern about any further fiscal slippage and the downside risks to UK growth.

“Consequently, we strongly suspect that at least one of the major credit rating agencies will strip the UK of its AAA rating in 2013.”

The loss of the UK’s AAA rating would be a deep embarrassment for the Government given the emphasis it has frequently placed in the past on keeping this top-flight status, which partly affects a country’s ability to borrow.

Chancellor George Osborne made retaining this rating a key focus for the UK’s fiscal austerity prioritisation as soon as the Government came to power in 2010. But the real impact to the economy of a rating downgrade would be limited, Archer believes.

What actually bites at the end of the day are actual borrowing costs and they remain very low for UK

George Osborne

He said: “There are so few countries left now with an AAA rating, that to lose it would not be the stigma or major threat to market confidence that it would have been say a couple of years ago. While parts of the financial system are volunta­rily hard wired into the ratings, a slip from AAA to AA would most likely have only a limited impact on the UK apart from piqued pride, as was the case for both France and the US.

“What actually bites at the end of the day are actual borrowing costs and they remain very low for UK.”

However, the situation is getting more “uncomfortable” according to Archer, and the differential between the UK and German yields has widened recently. Economists believe that the risk of the UK economy contracting again is quite high. Archer puts the chance of a contraction in the current fourth quarter at 45 per cent and the odds of a full-blown triple dip at 20 per cent. The latter would occur if the economy shrinks for two quarters in a row.

But Spencer Thompson, economic analyst at think tank IPPR, said: “It is really difficult to make a prediction on whether there will be a triple dip. The early data [from October] is conflicting between different sectors of the economy.”